dzsi-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to

000-32743

(Commission File Number)

__________________________________________________

DZS INC.

(Exact name of registrant as specified in its charter)

__________________________________________________


Delaware			22-3509099
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

5700 Tennyson Parkway, Suite 400 Plano, Texas			75024
(Address of principal executive offices)			(Zip code)

(469) 327-1531

(Registrant’s telephone number, including area code)

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	DZSI	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x


As of May 1, 2023, there were 31,159,778 shares outstanding of the registrant’s common stock, $0.001 par value.

Table of Contents

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Unaudited Condensed Consolidated Balance Sheets	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Unaudited Condensed Consolidated Statements of Stockholders' Equity	5
	Unaudited Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
	Signatures	35

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except par value)


	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	28,892	$	34,347
Restricted cash	1,975		3,969
Accounts receivable - trade, net of allowance for doubtful accounts of $16,087 as of March 31, 2023 and $16,184 as of December 31, 2022	141,029		153,780
Other receivables	21,518		16,144
Inventories	69,722		78,513
Contract assets	605		576
Prepaid expenses and other current assets	10,689		8,371
Total current assets	274,430		295,700
Property, plant and equipment, net	7,135		9,478
Right-of-use assets from operating leases	11,971		12,606
Goodwill	19,952		19,952
Intangible assets, net	30,422		31,742
Other assets	17,013		15,536
Total assets	$	360,923	$	385,014
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable - trade	$	107,904	$	121,225
Short-term debt – bank, trade facilities and secured borrowings	16,746		9,706
Current portion of long-term debt	23,660		24,073
Contract liabilities	19,476		21,777
Operating lease liabilities	4,859		4,834
Accrued and other liabilities	29,615		27,559
Total current liabilities	202,260		209,174
Long-term debt	—		—
Contract liabilities - non-current	6,636		7,864
Operating lease liabilities - non-current	10,499		11,417
Pension liabilities	11,060		11,021
Other long-term liabilities	2,583		2,806
Total liabilities	233,038		242,282
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, 36,000 shares authorized, 31,102 and 30,968 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively, at $0.001 par value	31		30
Additional paid-in capital	276,282		271,884
Accumulated other comprehensive loss	(6,462)		(4,351)
Accumulated deficit	(141,966)		(124,831)
Total stockholders’ equity	127,885		142,732
Total liabilities and stockholders’ equity	$	360,923	$	385,014

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share data)


	Three Months Ended March 31,
	2023		2022
Net revenue	$	90,812	$	77,040
Cost of revenue	60,985		50,215
Gross profit	29,827		26,825
Operating expenses:
Research and product development	14,851		11,844
Selling, marketing, general and administrative	24,781		17,742
Restructuring and other charges	4,152		436
Amortization of intangible assets	1,271		294
Total operating expenses	45,055		30,316
Operating loss	(15,228)		(3,491)
Interest expense, net	(792)		(90)
Other income (expense), net	728		(800)
Loss before income taxes	(15,292)		(4,381)
Income tax provision (benefit)	1,843		(1,333)
Net loss	(17,135)		(3,048)

Foreign currency translation adjustments (a)	(2,051)		(268)
Actuarial loss	(60)		—
Comprehensive loss	$	(19,246)	$	(3,316)
Net loss per share
Basic	$	(0.55)	(0.11)
Diluted	$	(0.55)	(0.11)
Weighted average shares outstanding
Basic	31,045		27,530
Diluted	31,045		27,530

(a)Includes net gain of $0.2 million and net loss of $0.4 million on intra-entity foreign currency transactions that are of a long-term investment nature for three months ended March 31, 2023 and 2022.

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)


	Common stock			Additional paid-in capital		Accumulated other comprehensive loss		Accumulated deficit		Total stockholders' equity
	Shares	Amount
Three months ended March 31, 2023:
Balance as of December 31, 2022	30,968	$	30	$	271,884	$	(4,351)	$	(124,831)	$	142,732
Issuance of common stock upon vesting of restricted stock units, exercise of stock options and employee stock plan purchases, net of shares withheld for taxes	134	1		(88)		—		—		(87)
Stock-based compensation	—	—		4,486		—		—		4,486
Net income (loss)	—	—		—		—		(17,135)		(17,135)
Other comprehensive loss	—	—		—		(2,111)		—		(2,111)
Balance as of March 31, 2023	31,102	$	31	$	276,282	$	(6,462)	$	(141,966)	$	127,885











Three months ended March 31, 2022:
Balance as of December 31, 2021	27,505	$	27	$	223,336	$	(4,457)	$	(86,999)	$	131,907
Cumulative effect of ASC 326 adoption	—	—		—		—		(401)		(401)
Issuance of common stock upon vesting of restricted stock units, exercise of stock options and employee stock plan purchases, net of shares withheld for taxes	98	—		156		—		—		156
Stock-based compensation	—	—		2,671		—		—		2,671
Net income (loss)	—	—		—		—		(3,048)		(3,048)
Subsidiary dissolution	—	—		—		(68)		—		(68)
Other comprehensive loss	—	—		—		(268)		—		(268)
Balance as of March 31, 2022	27,603	$	27	$	226,163	$	(4,793)	$	(90,448)	$	130,949

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

DZS INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net loss	$	(17,135)	$	(3,048)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	2,465		1,081

Amortization of deferred financing costs	60		—
Stock-based compensation	4,486

SEC Form 10-Q filed by DZS Inc.